Debt Consolidation

Does it feel as if you’re drowning in debt sometimes? It’s a terrible feeling, isn’t it? Over the years I’ve worked with scores of families who were seeking some sort of relief, and it feels great to be able to offer it.

However, the emotional nature of being overloaded with debt and seeking relief can sometimes lead to poor decisions, which is why I want to make clear the nature of debt consolidation home loans.

How Debt Consolidation Home Loans Help

The biggest benefit of using a refinance mortgage to consolidate debt is the fact that it often has a significant impact on your monthly payments. For example, if you have 4 credit cards with high interest as well as a personal loan, you might take those 4 cards and 1 loan and roll them into your mortgage.

By paying off those credit cards and loan, you will have reduced your monthly payment by a significant amount, especially if you have good credit.

It’s not uncommon for my clients to reduce their monthly payments by hundreds of dollars. In a nutshell, a debt consolidation loan buys you some breathing room each month when it’s time to pay the bills.

What A Debt consolidation home loan Doesn’t Do

Part of the reason your monthly payments drop so much when paying off debt with your mortgage is because of the longer term. If you have a 30-year mortgage, for example, all that debt you just paid off is amortized over 30 years. Naturally, the lower interest rate helps, as does the fact that mortgage interest is often tax deductible.

However, the warning I want to extend is that many borrowers will rush out to fill up their credit cards and take out brand new loans after going through a debt consolidation loan. Sure, it may be fun and exciting to do initially, but this is most definitely not the intended end result of a debt consolidation loan. See, even though your monthly payments are lower after a proper debt consolidation loan, over the long term those debts you consolidated will end up costing you more since it has been extended to a 30 year payoff period. (If you don’t play your cards right anyhow)

Why end up right back where you started?

The Ideal Outcome

Rather, the ideal outcome of a debt consolidation home loan is to take those monthly savings and put a portion into an interest-bearing account, as well as another portion paid toward the mortgage. This will accelerate your payoff, saving you thousands (Or more) in interest. Once you drive down that debt and find yourself in a more comfortable position, then perhaps you can celebrate with that shopping spree! 🙂